Facebook (FB) May Be Ready to Monetize Instagram

November 27, 2012 3:21 PM EST
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Price: $127.25 -0.24%

Rating Summary:
    49 Buy, 8 Hold, 1 Sell

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Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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After its debacle of an IPO, Facebook (NASDAQ: FB) continues to slowly win over Wall Street as the company makes an aggressive push to monetize its assets. The latest chatter suggests the social media juggernaut will soon monetize Instagram.

Facebook acquired Instagram in April 2012 for $1 billion and has largely left the service unchanged. This could all change soon, meaning users could be bombarded with ads.

Sterne Agee analyst Arvind Bhatia said Facebook's recently proposed changes to its data use policy and statement of rights and responsibilities could suggest the company is about to slap ads on the popular photo-sharing service.

"This change could be an indication that Facebook is planning to monetize Instragram in the near future, as it would allow Instagram to use Facebook's data to personalize the Instagram user experience and perhaps target advertisement," Bhatia notes.

Instagram currently has approximately 39M monthly active users, according to AppData, and the analyst said "We believe most estimates currently do not factor Instagram monetization yet due to the uncertainty on the timing."

In addition to the possible Instagram monetization, the analyst is more positive on Facebook's stock given improved visibility on mobile and the fact that the IPO lock-up overhang is now largely behind the us.

On mobile, Bhatia said, "We believe strong mobile performance in 3Q has helped alleviate the key investor concern surrounding the ongoing mobile transition for Facebook."

He continued, "We see this momentum continuing into the foreseeable future. Recall, 3Q Mobile advertising revenue was ~$150M (14% of advertising revenue in 3Q) or significantly better than most expectations, which were in the $50-$60M range. More important, exiting 3Q, this run rate had nearly doubled to an annualized run rate in excess of $1B ($3M a day) -- quite impressive given FB began showing mobile ads only at the end of 1Q this year."

The analyst reiterated his Buy rating and raised his price target on Facebook from $36 to $32.

For an analyst ratings summary and ratings history on Facebook click here. For more ratings news on Facebook click here.

Shares of Facebook closed at $25.94 yesterday.

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